Bank Succession Planning Made Simple


Succession-10-17-16.pngAccording to a recent Bank Director survey, 60 percent of those surveyed expect their bank’s CEO and/or other senior executives to retire within the next five years. The survey also revealed that most banks are unprepared for those coming changes. Only 45 percent have both a long-term and emergency succession plan in place for the CEO and all other senior executives. Does your bank have a plan? Will the plan actually work should the trigger be pulled?

There are a lot of moving parts in a bank’s management succession plan. That’s why we have highlighted the following three key steps to consider that have repeatedly surfaced in our experience working with bank boards and CEOs around the topic of management succession planning.

Who “Owns” Succession Planning?
The chairman or a board committee is the overall “owner” of management succession planning, specifically for the chief executive role and board of directors. In turn, senior management succession is owned by the CEO, with regulators now requiring most sized banks to have detailed succession plans in place for senior management. The big question quickly becomes; will those succession plans actually work, given the velocity of change in bank business models, regulatory demands, flat margins and the lack of viable growth options? Banks with well developed succession plans will clearly be in the driver seat. If your bank has a weak plan or no plan, here are three practical steps bank board, CEO and management teams should take.

Step One: Emergency Plan
In the event of an immediate leadership void, we recommend an emergency 90-day plan for each key position with no clear internal successor. Putting someone from the board or management team into the slot for 90 days buys time to consider the best short-term and long-term options. Appointing an interim person gives the board or CEO a chance to “test drive” the new leader while at the same time, considering external options. For public banks, it’s the fiduciary responsibility of the board to consider external options so as to compare and contrast to the internal candidate. However, based on our experience and observations, more often than not, the internal candidate gets the nod with minimal disruption and a high level of success.

Step Two: Internal Plan
Based on a recent Bank Director management survey, more than 50 percent of banks still do not have a formal succession plan for senior management. Shareholders are more active in bank succession and demand a written plan. Either way, regulators will soon be requiring formal succession plans across all asset sizes of banks. Clearly, succession requirements are moving down to the community bank level with all speed. Clients we serve with strong succession plans have taken the time to codify each senior management position, including the timeline to retirement and then review who in the bank could take on that role if necessary. Unfortunately, many banks simply don’t have a backup internal option. Either the bank can’t afford the extra overhead cost of a successor or the age and timeline of the backup option does not align for succession purposes. If your bank is in that predicament, move to step three immediately.

Step Three: External Plan
Being ever mindful of the internal succession plan is key when it comes to considering and evaluating potential external options. We have seen clients go to the extreme and develop a list of external succession options for all senior management positions. Since banks can’t predict when they will have a departure, which very well could happen before the internal successor is ready, it is wise to think and identify those whom it would make sense to recruit. Clearly knowing your competition and developing relationships in advance makes recruiting an executive easier, plus the culture fit can also be assessed early, thereby increasing a successful integration.

A practical three step plan can provide the board more detailed insights into the depth and reality of the company’s succession plan. A formal review by the bank board should be conducted annually to test succession plans and make adjustments where necessary.

Visit chartwellpartners.com/financial-services to download our simple succession planning guide.

Asking the Right Questions: How a Board Should Approach Credible Challenge



A well thought out decision making process is key to the success of the board and the financial institution as a whole. Regulators and auditors are looking to see that the board is thorough and educated with their actions. In this video, Lynn McKenzie of KPMG LLP lays out the importance of the credible challenge to management and how to best approach the process in the boardroom.

  • Why is it important for the board to provide a credible challenge?
  • Could credible challenge sour the relationship between the CEO and the board?
  • How should the board provide evidence of oversight?
  • What is the right level of detail in the minutes?

Really, What Is Franchise Value?




The concept of building franchise value was core to our Bank Board Growth & Innovation Conference in April. In this session, Fred Cannon, director of research for Keefe, Bruyette & Woods, breaks down franchise value.

Banks with dedicated customer bases enjoy significant advantages over any potential competitors. So how should a bank’s CEO and board think about franchise value—both in current terms and with an eye to the future?

Highlights from this video:

  • Franchise value is measurable
  • The new era is about credit availability
  • Deposits are generating less value
  • Franchise value creates economic value

Presentation slides

Video length: 29 minutes

About the speaker:

Fred Cannon—is director of research at Keefe, Bruyette & Woods, Inc. He joined KBW in 2003. In his dual role as director of research and chief equity strategist, Cannon guides the research efforts at KBW, which provides industry leading research on the financial sector and research coverage on more than 540 financial services firms.

Getting Friendly With Your Regulator


4-27-15-Jack.png“The regulatory environment today is the most tension-filled, confrontational and skeptical of any time in my professional career.” – H. Rodgin Cohen, senior chairman, Sullivan & Cromwell LLP

Six years after the worst financial crisis since the Great depression, bankers and their advisors are still complaining about regulation and the regulators. Cohen, who some people consider to be the dean of U.S. bank attorneys, made that statement back in March at a legal conference. Is the regulatory environment today really that bad? There are really two banking industries in this country—the relative handful of megabanks that Cohen has spent the better part of his career representing, and smaller regional and community banks that make up 99.99 percent of the depository institutions in this country.

There is no question that the megabanks have remained under intense regulatory scrutiny well after the financial crisis ended and the banking industry regained its footing. Overall, the industry is profitable, well capitalized and probably safer than before the crisis. But the regulators, led by the Federal Reserve, have never relaxed their supervision of the country’s largest banks, including the likes of JPMorgan Chase & Co., Bank of America Corp. and Citigroup. If the senior management teams and boards at those institutions are feeling more than a little paranoid, it’s probably for good reason. Joseph Heller, the author of Catch-22, wrote in his novel, “Just because you’re paranoid, doesn’t mean they aren’t after you.” The regulators might not be “out to get” the megabanks, but they clearly see them as a systemic threat to the U.S economy, and for that reason, have kept them on a short leash.

What about the rest of the industry—the other 99.99 percent? Has the regulatory environment improved for smaller banks? Based on comments that I hear at our conferences and elsewhere, I would say it has. The cost of regulatory compliance has increased for all banks, including even the smallest of institutions, in part because there are more regulations, but also because regulations are being enforced more strictly than was the case prior to the crisis.  In an interview that I did in the first quarter 2015 issue of Bank Director magazine with Camden Fine, chief executive officer at the Independent Community Bankers of America, Fine pointed to a general improvement in the level and tone of supervision throughout much of the country. Five years ago, bank examinations were “very harsh and inflexible,” to quote Fine. Now, exams generally seem more reasonable—which is understandable since the industry is in much better shape than it was six years ago.

But the regulatory environment might never be as relaxed as it was prior to the financial crisis. Today, the regulators want to be informed of any major decision, such as a potential acquisition or the launching of a new business line, which could impact the safety and soundness of the bank. You might not have thought that you had a “relationship” with your bank’s regulator, in the same way that you have a relationship with your outside legal counsel, investment banker or any number of consulting firms that management or the board might turn to for advice, but you do. That relationship certainly isn’t consultative in the sense that they won’t necessarily help you fix a problem, although it isn’t entirely authoritarian either, because you’re not necessarily asking permission, for example, to acquire another bank. Based on what I’ve been told by lawyers and investment bankers, regulators might express some concerns about the acquisition you have in mind, and they might even outline some areas of specific concern (like pro-forma capitalization). They might say it would be hard to approve the deal if those issues aren’t addressed, but they probably wouldn’t forbid you from going through with it.

I would say that managing the regulatory relationship is one of the key responsibilities for your bank’s CEO. Kelly King, the chairman and CEO at BB&T Corp., told me during an interview last year that he meets regularly with BB&T’s primary federal regulator—the Federal Deposit Insurance Corp.—and keeps it well appraised of the bank’s acquisition plans, which are key to its overall growth strategy. There is also an important role for the board to play—particularly the nonexecutive chairman or lead director—in maintaining a strong regulatory relationship. Those individuals might want to meet periodically with the bank’s regulator as well to drive home the point that the bank’s independent directors are engaged in the affairs of the bank.

I am sure that many older bank CEOs and directors resent the fact that the regulators have intruded so deeply into the business of the bank, but it’s a fact of life in the post-crisis world of banking—and an important relationship that needs to be carefully managed.